This
month saw the release of a substantial policy paper prepared by Jacob S. Hacker
and Nate Loewenthiel. Hacker is the Director of the Institution for Social and
Policy Studies (ISPS), the Stanley B. Resor Professor of Political Science, and
Senior Research Fellow in International and Area Studies at the MacMillan Center
at Yale University. A third-year student at the Yale Law School, Loewenthiel sits
on the Board of Directors of the New Leaders Council and on the Founders Board
of PolicyMic.com. He blogs regularly for The Huffington Post and writes
for citizenthink.net.

Titled Prosperity Economics: Building an
Economy for All, the paper is divided into three parts. The first offers a critique of “austerity
economics,” specifically challenging its five core myths: (1) government
spending and deficits are our primary economic problem; (2) cutting the taxes
on the most affluent Americans is the most effective way to spur economic
growth; (3) our high degree of social mobility mitigates any problems that
might be associated with income inequality; (4) the economy should be managed
by market forces, not by governmental controls; and (5) the wealthy create
wealth and are solely responsible for the creation of their own wealth.

The
second part of the paper offers alternatives to these myths, defining the three
core principles of prosperity economics: (1) innovation-led growth grounded in
job creation, public investment, and broad opportunity; (2) security for
workers and their families, the environment, and government finances; and (3) promotion
of democratic participation, inclusivity, and accountability—in
Washington and in the workplace.

In
the third part of the paper, these core principles are extended to specific
policy proposals, organized around three “pillars”: growth, security, and
democracy.

To
promote growth, the authors suggest that jobs be created by investing in
infrastructure and by restoring communities, by ensuring U.S. global
competitiveness, and by enforcing full-employment monetary policy. Likewise,
they suggest that innovation be fostered through education, through a continued
emphasis on cutting-edge technology and entrepreneurship, and through growth in
the advanced manufacturing sector. Lastly, they suggest that opportunity be
expanded and inclusivity be promoted through immigration policy, through
enhanced social mobility, and through rising wages and job quality.

Finally,
the authors argue that government policy must be freed from narrow corporate
interests—in particular, the influence of the banking industry—and
the influence of lobbyists and campaign donors. It must be tied, instead, to
consumer protection, to collective bargaining by workers, and to the protection
of voting rights.

(The full text is
available through the earlier link, and I have quoted liberally from the executive summary and table of contents.)

Writing for Cry
Wolf, Colin Gordon and Donald Cohen do not use the terms “austerity
economics” and “prosperity economics.” But in their article “Do America’s Corporations Care How
Much American Workers Earn?,” they first provide an historical overview of the relation
between economic growth and wage growth and then an explanation of why the
inversion of this historical relationship over the last three decades, which
has driven steep, short-term growth in corporate profits, is ultimately
unsustainable in any broader economic sense.

Gordon and Cohen remind
us that during the Great Depression, economists, government leaders, and
business owners all acknowledged that what might have been just another
economic downturn became a catastrophic economic collapse because wages had
remained too flat during the “boom” of the 1920s to sustain meaningful economic
growth after the “crash” and the “panic” erased the “paper profits” of
unregulated financial speculation. Therefore, over the next four
decades, there was a truly concerted effort to insure that the wages paid to
American workers remained sufficient to sustain the growth in consumer spending
on which America’s extended and unprecedented period of post-war prosperity was
based.

But, in the 1970s,
America’s economic dominance began to be challenged by Europe and Japan, which
had spent a quarter-century rebuilding the economic infrastructure that the
World War had destroyed, and by postcolonial nations, which were finally
establishing industrial bases that would allow them to exploit the natural
resources that they had previously provided to Western industries at very low
cost and to develop both domestic and export markets for their own value-added
goods. As a result, American corporate earnings began to be squeezed.

During the “Rust
Belt” period, American corporate leaders abandoned the principle that higher
wages were the main driver of economic growth and, instead, adopted the notion
that the wages paid to American workers could remain stagnant if the cost of
consumer goods could be driven lower by increasingly outsourcing their
production to the expanding, very low-wage industrial workforces of developing
nations. Gradually, this notion evolved into an acceptance of the erosion of
American wages as most low-skilled and semi-skilled production was shifted
overseas. Because high-end manufacturing was at the same time becoming
increasingly automated, the mass of American industrial workers rather rapidly lost
their leverage and then their jobs.

At the same time, American
business leaders yoked their business models to right-wing political ideology,
attacking unions for their supposed antagonism toward economic growth and thereby
accelerating the changes that made the large industrial unions seem
increasingly counterproductive and then anachronistic.

Not surprisingly,
the last three decades have seen unprecedented increases in corporate profits
and in income inequality. But, as wages begin very gradually to rise in
developing nations, the erosion of the incomes of American workers will become more
and more problematical, especially since nothing has replaced industrialization
as a job-creating economic sector in which rising productivity can drive
increases in wages and purchasing power.

If Ford’s
assembly-line was emblematic of the American industrial economy, Walmart has
been emblematic of the immediate post-industrial economy. The pervasive retailer
provides low-cost imported merchandise to working-class Americans whose
declining wages would otherwise have been more pointedly evident in the erosion
of their standard of living. But, notably, Walmart’s employees are paid so
poorly that they can barely afford its low-cost merchandise, and because most
of the merchandise is imported, very few Americans who shop at the retailer are
employed by companies that provide its merchandise.

Henry Ford was no
friend of the working man, but he recognized the wisdom of paying his workers
well enough that they could afford one of the cars that they were making.
Gordon and Cohen cite a number of statements by American corporate leaders that
suggest that the unsustainability of the Walmart model is becoming more widely,
if very gradually, acknowledged.

Ironically, because
public-employee unions have become the largest unions in the country, the
deficits faced by state governments because of the Great Recession have
provided right-wing governors with a ready rationale for furloughing social
workers, teachers, police, firefighters, and other civil-service workers. As a
result, amid the continuing chorus of complaints about the size and cost of
“big” government that has marked this electoral cycle, The Atlantic’s Jordan Weissman has reported that, data collected
by the Federal Reserve shows that government employment has actually declined
to its lowest level since 1968.

Despite—or
perhaps because of-- the political assaults on unions that have resulted from
the Great Recession, Jeffrey M. Jones reports that recent Gallup polling
shows that 52% of Americans still hold positive perceptions of unions. Given
that about half that percentage of American workers belong to unions in the
slightly more than half of the states that have not passed right-to-work
(union-busting) legislation, the polling results may reflect an increasing
awareness of the impact of unions on the broader economy and on the relative
affluence of individual workers.